Auto-Enrolment 3 – The Auto Enrolment Postponement PeriodMonday, January 9th, 2012
As discussed briefly above, auto-enrolment is required when jobholders’ earnings reach the Earnings Trigger. One issue that has been uppermost in professionals’ minds has been the issue of workers with fluctuating earnings. The employee is usually earning below the trigger, however, for one reason or another, exceeds it in one week or month – for example, a casual worker does overtime in one week which causes pay to exceed the trigger, prompting auto-enrolment.
An option for the employer in this instance is to use a delaying procedure referred to as ‘postponement’ in the Pensions Act 2008 (Note, however, that this has been referred to as ‘defer’ or ‘deferral’ in subsequent Regulations). This allowed the employer to delay auto-enrolment until a date not later than three months in the future. At the end of that period, and if the employee was still eligible for auto-enrolment, this date could not be postponed again. Therefore, in the instance of the employee with unusually high earnings in a week that exceeded the ‘trigger’, a second instance may have prompted auto-enrolment if it happened after the postponement period. The Pensions Regulator has been affirming this position in workshops.
However, The Pensions Regulator has issued a Q&A factsheet, specifically addressing this issue following representations from experts who had reviewed the Pensions Act 2011. The factsheet says their updated advice supersedes any previous guidance, both written and verbal, to software developers. It states that there are two types of postponement period:
- The ‘worker postponement period’ – a once-only postponement period applying to either
- all employees where they are already employed and the employer reaches their auto-enrolment staging date, or
- a single employee on their first date of employment (after the staging date)
- The ‘eligible jobholder postponement period’ – a point at which an employee becomes eligible for auto-enrolment, i.e. they reach 22 or their earnings exceed the trigger
Postponement period 2 is relevant to the above scenario of the inflated earnings for a person who would, normally, be below the earnings trigger. The Q&A factsheet states:
‘if the worker is not an eligible jobholder on expiry of the postponement period, they will not need to be automatically enrolled. The employer must continue to monitor their status on an on-going basis. At the point when the worker next becomes an eligible, the employer can choose to use a further eligible jobholder postponement period. This pattern can be repeated’
This guidance confirms that multiple postponements are allowable in certain circumstances. Expanding the example above:
A worker is normally a low earner, earning below the trigger. For the purposes of auto-enrolment, therefore, as their earnings do not exceed the trigger, they are not an eligible worker. However, in one week, unusually, their earnings are inflated to a point that they hit the trigger and the employee becomes eligible for auto-enrolment – they move from being a not eligible jobholder to an eligible jobholder. The employer may use a postponement period of up to three months. After this postponement period, the worker continues as a not eligible worker for a period of time and then, unusually, becomes eligible as a result of high earnings one week taking them over the trigger. What The Pensions Regulator has now confirmed is that, if they are not an eligible worker at the end of each postponement period, another postponement period is allowable.
This is welcome confirmation and clarification from The Pensions Regulator for employers who have a number of employees with fluctuating earnings. Whilst multiple postponements are allowable, the responsibility remains for the employer to check the employee is not eligible at the end of each postponement period. A compliance and penalty regime will ensure that this multi-postponement possibility is not abused, thereby avoiding enrolling eligible people.
- The Pensions Regulator – Postponement Q&A